Accounting Flashcards
accounting definition
system of recording information about business transactions to provide a summary of a company’s financial position and performance
primary objectives of accounting
recording information
classifying information
summarizing
interpreting
communicating
financial accounting
provides information to external users, focuses on producing accurate financial statements
tax accounting
deals with understanding and applying tax laws and regulations to insure regulated and well timed payment of taxes
managerial/cost accounting
serves to help internal decision making on a company’s management team
who is responsible for financial information
management
external auditors
creditors and lenders
shareholders and investors
regulatory and government organizations
why do creditors and lenders care about the financial information
they want to know the ability of the company to pay the loan back
external users
people that are not inside the operations of a company that still use the financial reports to make informed decisions
key users
investors and shareholders
creditors and lenders
analysts and financial advisors
regulatory authorities,
suppliers and venders,
customers,
competitors labor unions
potential business partners
general public
Internal users
people that are inside a company that use the financial information to make active decision about the operations, management and strategic planning
keys users
management team
board of directors
employees
budgeting and planning teams
cost and inventory teams
internal auditors
marketing and sales team
human resources
R and D
types of financial reports required and explanation of each one
annual report
semi annual or quarterly report
Ad-hoc reporting (notifies important events that notifies stakeholders of possible changes in the company)
balance sheet
shows a company’s financial position at a specific point in time. It lists the company’s assets, liabilities, and shareholders’ equity. The fundamental equation is:
Assets = Liabilities + Equity
income statement
A report that summarizes a company’s revenues, expenses, and profits or losses over a specific period. It shows whether the company made or lost money during the period, ending with net income.
statement of cash flows
A financial statement that tracks the flow of cash into and out of a company during a specific period. It is divided into three sections:
->Operating activities
->Investing activities
->Financing activities
-> net cash flow
->cash and cash equivalents
statement of shareholders equity
A report that shows the changes in the equity portion of the balance sheet over a specific period. It tracks activities like:
->Issuance or repurchase of shares
->Dividends paid
->Retained earnings growth or decline
accrual method
recognizes income when it is earned and expenses when they are incurred, regardless of cash flows.
In accounting the transactions are recorded when you are obligated to pay (when it actually happens)
(IFRS)
international financial reporting standards
key features of IFRS
Principles-Based Approach
Fair presentation
use of the professional judgment
comprehensive coverage
disclosure agreement
assets
Resources owned by a company that provide future economic benefits. They can be tangible (like cash, inventory, and property) or intangible (like patents or trademarks).
Example: Cash, accounts receivable, equipment, real estate.
Liabilities
Definition: Obligations or debts a company owes to external parties, which must be settled in the future, often with assets like cash.
they can be separated into current or not current
Example: Loans, accounts payable, bonds, salaries payable.
Equity
The residual interest in the company’s assets after deducting liabilities. It represents the owners’ claim on the company’s assets.
Example: Common stock, retained earnings, contributed capital.
Debits
Recorded on the left side of an account.
credits
Recorded on the right side of an account.
assets (credits and debits)
debits increase credits decrease
expenses (credits and debits)
debits increase and credits decrease
liabilities
debits decrease and credits increase
equity
debits decrease and credits increase
revenue
debits decrease and credits increase
rules in the account t format
every transaction must have at least one debit and one credit
debit must equal credits in all transactions
negative numbers are not used
transactions are only recorded if they have economical impact on the company
format of T format
the journal entries should have
date
debit account first and then credit account
clearly separate credit amount and debit account
Account Balances:
